Jo Won-tae's 1st Anniversary of Inauguration... Dual Challenges of Overcoming COVID-19 and Defending Management Rights

Breath of Relief from Government Financial Support... Focus Likely on Overcoming the COVID-19 Crisis
Share Battle with the Three-Party Alliance Ongoing... Will They Find a Clever Solution?

[Asia Economy Reporter Yoo Je-hoon] Amid the unprecedented crisis faced by the domestic aviation industry due to the novel coronavirus disease (COVID-19) pandemic, Cho Won-tae, Chairman of Hanjin Group, marked his first anniversary in office. Although the government’s trillion-won financial support has provided some relief, Chairman Cho is immediately confronted with the dual challenges of management difficulties caused by COVID-19 and a management rights dispute this year.

According to Hanjin Group on the 24th, Chairman Cho marked his 'modest' first anniversary without any separate events or internal statements. He was appointed chairman of Hanjin Group on April 24 last year, about two weeks after the passing of his late father, Cho Yang-ho.

Since taking office, Chairman Cho has focused on restoring labor-management relations that had deteriorated due to incidents such as the 'nut rage' and 'water cup abuse' cases. Right after his inauguration, he initiated improvements in corporate culture, including relaxed dress codes, and in January, he accompanied flight attendants on a charter flight to Wuhan, China, the epicenter of COVID-19, earning public goodwill. Industry experts say these moves contributed to his decisive victory in the management rights dispute with his elder sister, former Korean Air Vice President Cho Hyun-ah, in March.

However, as the COVID-19 pandemic intensified, Hanjin Group and Korean Air under Chairman Cho’s leadership have been driven into their worst crisis. The international flight operation rate, which accounts for 94% of Korean Air’s passenger revenue, has plummeted to around 10%, effectively cutting off cash inflows. In response, Chairman Cho has taken proactive self-help measures including ▲ workforce restructuring (executive salary returns, rotational leave for all employees) and ▲ asset sales (Jongno Songhyeon-dong land, Wangsang Leisure Development Co., Jeju company housing). With the addition of the government’s trillion-won financial support, the immediate liquidity crisis can be somewhat alleviated.

The problem is that there are no signs of improvement in the severely deteriorated business conditions. The industry expects Korean Air to face large-scale revenue declines and trillion-won deficits this year as well.

Industry insiders predict that Chairman Cho will have no choice but to consider additional self-help measures beyond government financial support. Korean Air is already reviewing a paid-in capital increase of up to 1 trillion won. There is also analysis that further asset sales may follow. Typical options include 'sale and lease-back' of core assets such as aircraft and related facilities and land.

The management rights dispute with the shareholder coalition (the three-party alliance) led by former Vice President Cho Hyun-ah, aimed at normalizing Hanjin Group, is ongoing. Recently, the three-party alliance expanded its stake in the group’s holding company, Hanjin KAL, to 42.74% through continuous share purchases, surpassing Chairman Cho and his allied shares at 41.30%. Although they achieved a decisive victory at the March general meeting of shareholders, the upcoming meeting presents an unpredictable scenario.

On the other hand, Chairman Cho’s situation is unfavorable. Ally Delta Air Lines is also suffering massive losses due to COVID-19, and no additional white knights are clearly emerging. Professor Heo Hee-young of Korea Aerospace University said, “Unlike foreign countries that have means to defend management rights, Korea lacks such mechanisms, making this a regrettable battle for Chairman Cho,” adding, “Along with the challenge of overcoming the COVID-19 crisis, he faces a major test in defending management rights without any defense measures.”

This content was produced with the assistance of AI translation services.